Suno Investor Ditches Spotify for AI Music, Accidentally Undermining Spotify’s Fair Use

Suno’s rapid ascent to $300 million in annualized revenue and two million paying subscribers—achieved in under two years, according to co‑founder Mikey Shulman—has placed the AI‑music platform squarely in the crosshairs of the recording‑industry establishment (The‑Decoder). The dispute centers on Suno’s practice of training its generative model on a corpus that includes copyrighted songs without explicit licences. Suno’s legal team leans on the “transformative use” fair‑use doctrine that has become the standard defence for AI firms: the model merely learns patterns and produces outputs that do not compete with the original works (The‑Decoder).

That defence was jolted when Menlo Ventures partner C.C. Gong publicly announced on X that she “barely uses Spotify” after shifting most of her listening to Suno, citing fatigue with “recycled recommendations” and praising AI’s ability to generate an “ever‑expanding long tail” of music (The‑Decoder). By framing Suno’s output as a replacement for human‑made tracks, Gong inadvertently affirmed the very market‑substitution test that courts use to evaluate fair use—whether the new product harms the market for the original work (The‑Decoder).

The post was quietly deleted after AI copyright specialist Ed Newton‑Rex flagged the misstep, noting that Gong’s statement could be weaponised by plaintiffs to argue that Suno’s service directly competes with traditional streaming catalogues (The‑Decoder). While a single tweet is unlikely to dictate a judicial outcome, the incident underscores the evidentiary burden Suno faces: proving that AI‑generated songs do not cannibalise Spotify’s user base or the broader market for licensed recordings requires granular consumption data that is notoriously difficult to obtain (The‑Decoder).

Suno’s recent financing round, which valued the company at $2.45 billion, signals investor confidence despite the legal headwinds (TechCrunch). Yet the episode illustrates a broader tension for AI‑driven content platforms: the optimism of investors and users can clash with the strictures of copyright law, especially when the narrative shifts from “augmentation” to “substitution.” As Suno scales, its ability to demonstrate that AI music expands rather than erodes the market will become a pivotal factor in any fair‑use adjudication.

For Spotify, the fallout is equally consequential. The streaming giant has long relied on a fair‑use defence that AI‑generated works are merely “learning tools” that do not diminish demand for licensed recordings. Gong’s admission that she now prefers AI‑crafted tracks over Spotify’s catalogue provides a concrete example of consumer substitution, potentially weakening that position in ongoing litigation (The‑Decoder). The episode serves as a cautionary tale: as AI creators gain market traction, the line between transformative use and market replacement will be scrutinised more closely by courts, regulators, and industry stakeholders alike.